In dozens of counties around the US, contractors bidding for government projects have encountered an unusual problem. Thanks to a quirk in a Depression-era federal labor law, firms handling government contracts for truck driving to forklift operation to carpentry are essentially forced to pay their employees minimum wage, as Bloomberg points out in a recent report.
Six letters sent by the Department of Labor confirmed that pay for certain jobs created through government contracts has stagnated around $7.25 per hour, the federal minimum wage. The pay is far below average wages for those jobs in the private sector, despite the fact that the Davis Bacon Act, a Depression era law meant to ensure that pay for government contractors stayed level with the private sector, was specifically intended to prevent just such an outcome.
While this phenomenon probably won't make much of a difference in the grand scheme of things, they're one reason why the Federal Reserve has been unable to figure out exactly why falling unemployment hasn't managed to impact wages in a positive way. Unsurprisingly, government intervention and incompetence is to blame.
Wages for these jobs are meant to be determined by a government survey that hasn't been conducted regularly since the 1980s.
Thanks to a web of loopholes and limits, the federal government has been green-lighting hourly pay of just $7.25 for some construction workers laboring on taxpayer-funded projects, despite decades-old laws that promise them the "prevailing wage."
Over the past year, the U.S. Department of Labor has formally given approval for contractors to pay $7.25 for specific government-funded projects in six Texas counties, according to letters reviewed by Bloomberg. Those counties are among dozens around the nation where the government-calculated prevailing wage listed for certain work—like some carpenters in North Carolina, bulldozer operators in Kansas and cement masons in Nebraska—is just the minimum wage.
That’s in part because, according to publicly available data from the Labor Department’s Wage and Hour Division, the agency is relying on wage survey data in more than 50 jurisdictions that’s from the 1980s or earlier. Experts said that’s a far cry from what Congress intended when, starting with the Depression-era Davis Bacon Act, it passed a series of laws meant to ensure that private companies contracted for government-backed projects pay their workers at least in the vicinity of what others get for the same work in the same geographic area.
In an emailed statement, the Labor Department didn’t address whether the decades-old data is a problem.
"The Wage and Hour Division carefully plans where to survey on an annual basis to ensure that prevailing wage rates reflect the reality of construction pay practices in a locality. The division identifies potential survey areas based on a number of criteria, including where available data on active construction projects in an area reveal changes in local pay practices such that a survey is necessary," the department said.
While progressives have been working to preserve the rule, pro-business groups (led largely by Republicans) have won a series of legal victories in Arkansas, Indiana, Kentucky and West Virginia that have seen local versions of the law thrown out, much to the delight of unionized labor in those areas. In contrast, legislation to throw out the protections has stalled in Congress largely because some Republicans support the protections. Members of Trumps cabinet have indicated that the Davis Bacon rule must remain on the books, for now, at least, as the government prepares to launch a federal infrastructure spending initiative.
Not that it would matter much anyway, since the surveys used to set these wages - as we noted above - in some cases haven't been conducted since the 1980s.
In recent years, the opposition—largely Republicans and industry groups—scored a series of wins, successfully pressing state governments in Arkansas, Indiana, Kentucky and West Virginia to repeal their own “little Davis Bacon” rules. By contrast, the federal statutes remain in place, despite the efforts of Representative Steve King, Republican of Iowa, who said last year that “no one can claim to be a fiscal conservative if they think the federal government needs to inflate the cost of wages.”
But for some workers, that guarantee of a prevailing wage no longer carries much weight. For taxpayer-funded projects in seven states, surveys used to determine the prevailing wage for some jobs haven’t been conducted for three decades or more.
In such places, "the Act becomes meaningless" said Mark Erlich, the former executive secretary-treasurer of the New England Regional Council of Carpenters. With rates so low, compensation standards throughout the industry are dragged down, said Erlich, now a fellow at Harvard Law School. In states such as New Hampshire and Maine, where prevailing wage rates haven’t kept up, unionized firms often don’t bother bidding for government-backed work, he said, because they know they will be underbid.
For an example of how these laws work on the ground, Bloomberg offers examples from Maine's Cumberland and York counties. In these areas, the DOL lists "prevailing wages" that were set in the late-1980s and mid-1990s.
In Maine’s Cumberland and York counties, the U.S. Department of Labor lists prevailing wages for carpenters of just $9.54 an hour (with 59 cents worth of fringe benefits) and $9.26 (without benefits), respectively. Those rates are based on wage surveys from 1994 and 1988. But the average union carpenter in those counties now makes approximately $22 an hour, plus about $15 in benefits, Erlich said. Even non-union contractors there, to compete for employees in a tight labor market, would pay around $18 to $25 in total hourly compensation. The failure of government to keep up with what’s going on in the labor market, he said “is a large piece” of why construction has faded as “a pathway to the middle class.”
Some construction workers are guaranteed somewhat better-than-minimum wage pay thanks to a different rule: An executive order, signed by President Barack Obama in 2014, which required that federal contractors pay their employees at least $10.10 per hour. (That rate was indexed to inflation, and so now stands at $10.35.) But Obama's regulation, which governs projects covered by the Davis-Bacon Act applying to federal or Washington D.C. contracts worth at least $2,000, does not control projects covered under the Davis-Bacon Related Acts, which govern projects backed by federal grants, loans, or insurance.
That’s the case for projects in the six Texas counties mentioned above, for which the Department of Labor sent letters confirming its approval of $7.25 hourly pay for jobs such as truck driver, sprinkler fitter and forklift operator. Such pay is far below the actual average wages in the current market for construction workers, said Jose Garza, executive director of the Workers Defense Project, a Texas non-profit that advocates for employees in the industry. In Austin, where the Labor Department this year approved $7.25 per hour for workers such as bulldozer operators, most construction employers are paying more than double that, said Garza, who worked in the agency’s policy department during the Obama administration. But that’s in part due to a labor shortage. In a weaker economy with higher unemployment, low prevailing wage standards could tug standards down further.
Of course, the problem could easily be resolved by pegging the pay rates to "less granular" data (perhaps indexing it to inflation). But as long as public money is involved, the idea that costs for the government should be higher than they already are probably won't be getting traction any time soon as the Trump administration prepares to blow out the deficit by $1.5 trillion over the next 10 years - and that's just from tax reform.